Despite Bond Rally, Stocks Finish Lower
Wall Street pulled back Thursday even though long-term interest rates slid, ahead of today’s key May employment report.
The Dow Jones industrials lost 30.29 points to 5,667.19, and selling was much heavier in the Nasdaq market of mostly smaller stocks, where the composite index tumbled 16.63 points, or 1.3%, to 1,232.52.
The stock market’s weakness stemmed partly from concerns about the dollar’s recent strength, and its potential effect on multinational companies’ earnings, analysts said.
Digital Equipment dropped 3 to 46 1/2 after Goldman Sachs and Soundview Financial trimmed earnings estimates, citing concerns about personal computer sales. IBM fell in sympathy, off 3 5/8 to 101 1/4, and many other tech issues also slid.
Metals stocks also were down sharply, as copper and aluminum prices hit two-year lows in London, pressured by rising supplies amid weaker-than-expected demand in Europe.
Stocks’ troubles belied a healthy rally in the bond market. Despite uncertainty about today’s May employment report--and what it will say about the economy’s pace--the 30-year Treasury bond yield dropped to 6.90% from 6.95% Wednesday.
Bonds were helped by a Washington Post story quoting Fed officials disavowing the idea that they are concerned enough about the economy’s resilience to consider tightening credit.
Also, the central banks of Britain and France surprised investors by trimming key interest rates. The Bank of England cut its minimum lending rate by a quarter point to a 21-month low of 5.75%.
The May employment report is expected to show that the economy added 153,000 jobs last month. A much bigger number could spark another bond selloff, some analysts warn, if investors again begin to worry that the Fed will raise interest rates sooner than later to keep the economy from overheating.
Meanwhile, stocks’ weakness Thursday surprised many traders, given the bond rally. Declining issues topped winners by 14 to 10 on the New York Stock Exchange and by 23 to 16 on Nasdaq. Trading was active.
Analysts noted that the second quarter ends in three weeks, so more investors are likely to begin focusing on second-quarter corporate earnings. With the dollar having strengthened further in recent months, U.S. companies’ overseas earnings stand to be devalued.
However, better-than-expected demand in the domestic economy could more than offset that penalty.
Among Thursday’s highlights:
* Tech stocks were broadly lower. Intel dropped 1 5/8 to 75 1/4, Sun Microsystems sank 2 3/4 to 63 7/8, Motorola lost 1 3/8 to 64 1/8 and Ascend Communications sank 4 1/2 to 62 1/2.
Alsol Newbridge Networks fell 3 to 67 3/8, 3Com lost 2 3/16 to 48 and Netscape Communications was off 2 3/4 to 60 1/4.
* Micro Warehouse plummeted 11 7/8 to 22 7/8. The company warned of weaker than expected earnings in the current quarter because of slower sales of Apple Macintosh computers. Apple was off 7/8 to 24 1/4.
* Among recent high-fliers, Presstek plunged 31 1/2 to 77 1/2 amid reports of a federal probe into possible manipulation of the shares.
* Among metals stocks, Alcoa fell 1 3/4 to 57 7/8, Reynolds Metals lost 1 1/8 to 53 1/8 and Asarco dropped 1 to 29 3/8.
* On the plus side, AT&T; Capital added 3 at 44 but AT&T; lost 3/4 at 61 1/4 after AT&T; agreed to sell its stake in AT&T; Capital to managers and other investors.
* GE rose 1 7/8 to 86 1/4 and Federal National Mortgage gained 1/2 to 32 amid rumors that the new manager of the Fidelity Magellan fund is buying the stocks for the fund.
In currency trading, the dollar rose against the British pound after Britain cut interest rates Thursday and gained against the yen ahead of key Japanese economic data due today. Against the yen, the dollar edged higher to 109.15 from 109.03 on Wednesday.
Earlier, the dollar climbed to 109.52 yen, its strongest since Feb. 4, 1994.
In commodities trading, grain prices rebounded from a recent selloff. Oil prices also rebounded, while gold slipped.
